Old axe standing against a piled pieces of firewood in wood“Give me six hours to chop down a tree and I will spend the first four sharpening the axe.”

― Abraham Lincoln

The Bipartisan Budget Act (BBA) was signed into law by President Barack Obama in 2015 and fundamentally changed the way partnerships are audited. Under the BBA, the IRS generally assesses and collects any understatement of tax (called an imputed underpayment) at the partnership level. The new rules were applicable to all entities starting on January 1, 2018, unless they are eligible to elect out. A significant uptick in BBA audits hasn’t, for the most part, occurred because of other demands on the IRS. However, a ramp up in BBA audits in 2021 is expected given IRS plans to increase audits on small businesses, usually operating as partnerships, by 50 percent.  Preparation prior to any audit is a good idea, but it is imperative for partnerships navigating new audit rules under BBA.  Here are some ways to sharpen your axe before the audit notice arrives. Continue Reading Is Your Partnership IRS Audit Ready?

Midsection of tax auditor examining documents with magnifying glass at table in officeIf you haven’t read Part 1 of this blogpost, you might appreciate the background in that post.  That post dealt primarily with the concepts of communication during the audit. However, the concepts below should be helpful even without the benefit of Part 1. This post focuses on the concepts of preparation and presentation during the audit.    Continue Reading Tips for Working with IRS Revenue Agents During an Audit – Part 2

Recent decisions have provided taxpayers with new ways to procedurally challenge penalties assessed in their cases.  Joshua D. Smeltzer, former Department of Justice Tax Division litigator now at Gray Reed, recently published an article in the Journal of Tax Practice & Procedure (a quarterly scholarly journal published by CCH Inc.) outlining the questions that taxpayer and their advisors should be asking when they are assessed penalties by the IRS. A reprint of the article is available here.

Stamp IRS audit and accounting documents.Dealing with the Internal Revenue Service (IRS) is sometimes a difficult and complicated process. Even more so now given the pandemic.  Interactions with a Revenue Agent may not happen in person, but there will be contact with the IRS in some form. At times the procedure of communicating with the IRS is cumbersome, even for the most experienced tax practitioner.  Experience shows that a taxpayer can be successful in dealing with the IRS at all levels with proper communication, preparation and presentation. This post will occur in two parts, the first part will discuss communication and the second part will discuss preparation and presentation. Continue Reading Tips for Working with IRS Revenue Agents During an Audit – Part 1

Magnifying glass in front of an open newspaper with paper houses. Concept of rent, search, purchase real estate.Even if you are not a tax professional, many people have heard of a 1031 exchange or like-kind exchange. This tax deferral provision has been a permanent part of the Internal Revenue Code for a long time. Usually, if a taxpayer swaps an asset for another asset it is usually a taxable sale.  However, if the exchange comes within Section 1031, then it can generate no tax or limited tax due.  Essentially, a taxpayer can change their investment without, according to the IRS, cashing out or recognizing capital gain. Continue Reading IRS Issues New Rules for Gain Deferral in Business Exchanges of Real Property

Gold wedding rings so close and a dollar, love and moneyTexas is a “community property” state; but all property in Texas is not “community property”.

In Texas, each spouse can have his or her own “separate” property, which generally consists of property that was acquired by gift or inheritance, and that which was owned by the spouse prior to marriage.  All other property is generally presumed to be community property. Continue Reading Collecting Separate Tax Debts from Community Property

Texas statelineShortly after I moved to Texas from Washington, D.C., a federal judge called me about a potential conflict with a party in a lawsuit I just filed. Once the conflict was resolved, and recognizing I didn’t have a Texas accent, he asked if I was new to Texas and then welcomed me.  This was years ago and the numbers of those moving to Texas has only increased.  California, in particular, seems to generate many newly minted Texans.  The exodus from California is real and it involves high-profile moves like Elon Musk and hundreds of other Californians. The reasons for the exodus are usually cost of living and no state income taxes. However, the California Franchise Tax Board (FTB) is notoriously aggressive and may not let you go quietly.  If you are new to Texas here is what you need to consider when making the breakup with California official. Continue Reading Leaving California for Texas May Cause State Income Tax Headaches

Black friday gift, paper box with red silk big round ribbon bow isolated on white backgroundA good friend called me recently with a question for one of his clients.  The client, an elderly client with health problems, wanted to know if the payments she has been making to her caregivers could be treated as non-taxable gifts, or if she has to report the payments to the IRS as wages? Continue Reading Love Don’t Cost a Thing? Drawing the Line Between Wages and Gifts

Cryptocurrency SavingsCryptocurrency is more accessible than ever before. Banks are continuing to both implement procedures for and, in some cases, develop their own cryptocurrencies. Paypal allows users in the U.S. to buy, sell and hold select cryptocurrencies directly through PayPal and it will enable cryptocurrency as a funding source for purchases in 2021. Volatility in the price of cryptocurrencies continues, and is likely to continue, but it is becoming a more recognized investment and method of payment. As more taxpayers integrate cryptocurrency into their finances, they should consider tax implications. Here are some things to remember about current or future cryptocurrency transactions and investment. Continue Reading Taxpayer Guidelines for Cryptocurrency in 2021

irsThe Washington Post published an article on April 8, 2015 titled “In Dallas, the IRS says it can’t chase tax cheats who owe less than $1 million.”  Here is a section of the article (emphasis added):

If these taxpayers are delinquent on $900,000, for example, the IRS won’t go after them; budget reductions have forced the revenue collection staff to train its firepower on cheats who owe $1 million or more.

I have to say, sorry, we can’t get that money,” said Richard Christian, supervisory revenue officer for the Dallas area.  “Nobody’s ever going to knock on their door.”

Amazing that the IRS would publically say something like this.  That being said, if you are in a hole with the IRS, your best option is to work with them to get them paid ASAP.  Avoiding the IRS is never a good idea.